A new beginning for asset management?
In this latest iNED diary entry, JB threatens his own popular capital by exposing his beliefs and by tackling the issue of board diversity and reaching deeper into the fabric and philosophy of the City, its colonial foundations and the difficulty with targets and asks ‘how do fund boards assess equality and its value to customers and populous?
What a few months it has been: global pandemics giving way to global unrest. It feels as if when the planet is not on lockdown, or submerged, it’s on fire one way or another. It forces us to question our own beliefs. How we identify ourselves and identify with our industry informs how we conduct as non-executive directors (iNEDs). It pulls on our social and political values. The problem is complex and underpinning it is the old age class struggle and division of wealth and opportunity. In turn these raise a question of ethics; and of legality, for investment fund boards.
Through most of my academic career (some years ago) I studied the effect of European laws, both vertical and horizontal. It is interesting to note that since ascension of the Treaty of Rome in 1972, the UK has subscribed to a proxy constitution of rights set down by the European Union and the jurisdiction of the European Court of Justice (and Court of Human Rights). Therefore, as we stumble towards an uncertain Brexit, the UK is set to again return to a democracy wholly without written constitution. Will that reverse equality and equity in our society and industry, which still remains in question today? Meanwhile the City is full of imagery; colonialism is the foundation of its identity. If Churchill’s statue can be de-faced then frankly most of the City is fair game to protestors. Protest is a democratic right, as is the right to vote.
One person, one vote is the foundation of our democracy in the UK. This was not always so but is true today bar exceptions of those unfortunate enough to fall through the electoral roll and taxation system. A millionaire has the same single vote as someone out of work. The vote ignores our; sex, ethnicity, social class or ability. Nevertheless, any voting system can give rise to inequalities. ‘First Past the Post’ favours two-party politics and concentrated voting patterns; whereas ‘Proportional Representation’ better reflects a broader demographic but can ignore voter concentrations. Both systems have flaws but at least we have a democracy of sorts. Yet the U.K. is still a democracy constructed without formal constitution and relies on being fortified by Parliament through laws. This is why it is so important who we elect and how parliamentarians uphold human rights. It is also important why lobbying parliamentarians and Government is so important today. Thus, we see a succession of reviews and laws to drive policy from the top down.
Yet, despite European laws to the contrary, the UK has addressed equality sequentially rather than in parallel. Gender equality should be easier to achieve (the populous broadly divided 50:50), yet change has been at best stubborn and gradual until the last few years, as new codes forced greater gender representation. Yet female representation on boards generally and fund board specifically, remains well below 50%. BAME (that’s black. Asian, minority and ethnic) board representation is far far lower.
Without greater democratic leverage, ethnic minorities don’t just need equality but equity; that is a greater level of support than that offered by one person – one vote representation in order to address discrimination. This is where our lack of constitution appears blunt and ungainly. It is also why the diversity agenda has to gain support (or at least avoid resistance) from the majority populous to push parliamentarians and Government into action. It requires social justice.
Moving fund boards to a social agenda
There have been two main actions to address diversity to date. The first is that we add better diversity to board composition. We need more multi-lateral diversity on fund boards; (gender, and more) if we want fund boards to be diverse to look and feel like your customers, colleagues, investors and wider populous (society). Might I suggest your board seeks to represent the greatest diversity across these key stakeholders’ groups; noting that one inequality does not proxy for another, they are not mutually interchangeable thus all inequalities need to be pursued simultaneously.
This draws on the social agenda from ESG (environmental, social and governance) factors. As fund boards contemplate how ESG adds value then they should also assess themselves through a social lens. To truly embrace a new fund order I suggest fund boards need a third policy. The problem is that free market economics is hinged to a right-wing narrative of equality within inequality. That the few can profit on the many and just resonates far too closely to colonialism to be easily accepted as a force for good.
Social capitalism hasn’t traditionally sat well in the UK but the move to principles of responsible investment and sustainable development goals are moving the City’s once hardened capitalism, left.
Thus, by evolving boards into something that look and sound more socially driven, fund boards could be aligned with customers, communities and workers along the lines of a German GmBH. Here representation could be both lay and professional, customer, worker, multi-cultural, gender diverse, both Exec and NED. Whether board composition should simply reflect our population mix or go further is unclear from a democratic standpoint. More easily, we could transition to fully independent fund boards, an idea deserving of more discussion as FCA reviews progress on remedies. This would also make the bigger question easier to address.
If fund boards had a guiding principle of more diversified representation then a broader range of issues could be assessed and their societal value derived. New AoV considerations would come to the fore taking on characteristics of equality, diversity, sustainability, ethics and transparency. This would be applied to both how a fund company invests and also how it treats its own workforce, customers and public. All very leftist I know.
Perhaps, only by changing the perception of value and the society role of the City can it escape its colonial history and move to a more positive purpose. Beyond the falling statues; in our darkest hour the answer lies in our constitution, our structures, laws, culture and yes, boards. You and me.
Until next time.
“It has been said that Democracy is the worst form of government except all those other forms that have been tried from time to time.” Sir Winston Leonard Spencer Churchill. Prime Minster of United Kingdom 1940-1945.
In his monthly column, Diary of an iNED, JB records his experiences on the boards of two very different organisations as he navigates the highs and lows of a plural career at a time when the fund industry is beset with challenges and opportunities in equal measure.
JB can be contacted at firstname.lastname@example.org.